New Portfolio Snapshot & Allocation

Tags

agri-business, alternative assets, asset allocation, bubbles, cash, diversification, emerging markets, Europe, Event Driven, frontier markets, Ireland, luxury goods, macro investment thesis, mobile, natural resources, Nifty Fifty, portfolio allocation, property, smartphone revolution, UK, US, volatility

Welcome to the dog days of summer…

A good time to pause & take stock of my portfolio. Following on from my recent H1-2017 portfolio performance post, here’s my Top 10 Holdings today:

In fact, the table lists all of my current disclosed holdings. And just to add some overall context, only five of these holdings actually feature in my Total Portfolio Top 10, while Newmark Security doesn’t even make the Top 20 any longer.

I won’t add new commentary here, since I last focused on my big H1-2017 winners & losers, and covered all my disclosed holdings in this January Top Trumps post. Not to mention, the rash of new investment write-ups this year: Alphabet (GOOGL:US), Record (REC:LN) & Applegreen (APGN:ID). But for your reference, I will provide corporate website & Bloomberg links, links to relevant historic posts & write-ups (remember, good investment theses tend to evolve slowly!), plus the latest share price & market cap for each stock:

i) Alphabet (GOOGL:US, or GOOG:US)   (9.5% Portfolio Holding):

‘So Why Not Google It..?’

Share Price:   USD 940.08

Market Cap:   USD 648 Billion

Advertisement

The Inherent Contradictions of My Portfolio (or Who’s The Greater Fool..?) (Part IV)

Tags

asset allocation, bubbles, bullish, developed markets, don't fight the Fed, emerging markets, frontier markets, macro investment thesis, Nifty Fifty, wall of money

Continued from Part III.

OK, so here’s an end-June snapshot of my current portfolio allocation:

[NB: And here’s my portfolio a year ago (from this post) – the majority of subsequent changes are obviously due to sales/purchases & the share price appreciation/depreciation of (mostly disclosed) holdings. Notably, my minor Hedge & Nat Resources allocations are now eliminated on sales of holdings, while my new US & Undisclosed (a new asset class I’m still working on) allocations reflect undisclosed new holdings. I’ll also highlight my Cash allocation’s pretty minimal, with the priority on Fixed Income (which is how I basically consider my Alternative Asset Opportunities (TLI:LN) holding) & Event-Driven (essentially, my NTR plc holding…noting, in particular, last week’s announcement of a return of capital/wind-down) 🙂 ]

Some big & small changes, obviously – but in the scheme of things, it certainly isn’t a radically different portfolio. But what were you expecting…did you really think I’d turn on a dime & completely transform my portfolio? Um, maybe if I was some hard-charging hedge fundie. But for the average investor, the more rapidly & radically one’s portfolio changes, the more likely it’s the result of poor/faulty decision-making! And I suspect this is even more true of thesis-driven investing – the biggest & most rewarding theses tend to develop/evolve over a long period of time, and likewise so should your portfolio…

Now, let’s consider some potential portfolio allocation implications, in terms of my current macro investment thesis. [Keeping in mind my recent Four Feds commentary]:

Emerging/Frontier Markets:  My underlying emerging/frontier markets thesis hasn’t changed a jot since I wrote this post (& its follow-up). But sentiment remains negative, with investors/commentators focusing on specific country surprises & disappointments, and the narrowing growth gap between developed & emerging/frontier markets. Currency weakness, esp. against the dollar, hasn’t helped either. But emerging/frontier markets are still the world’s growth engine, and will continue to trounce developed markets in terms of absolute growth. And the narrowing growth gap’s mostly due to starkly differing fiscal/monetary policies…investors might well ask themselves which policies are more sustainable? As for currency weakness – yes, it’s a short term hit, but it also improves their terms of trade substantially.

But doubters question whether a new export-led growth surge is even possible, citing lower developed market growth/demand. Which strikes me as a remarkably stupid argument…if you expect lower Western growth, surely it strengthens the case for high growth emerging/frontier markets investment?! Many which now appear to be reaching an inflection point, where domestic middle class/consumer demand’s emerging as a new growth driver, reinforcing or even supplanting existing export-led growth.

The Inherent Contradictions of My Portfolio (or Who’s The Greater Fool..?) (Part III)

Tags

asset allocation, bar-bell strategy, bubbles, bullish, floating world, GARP investing, macro investment thesis, Nifty Fifty, stock picking, wall of money, wall of worry

Continued from (Part I) & (Part II).

For a moment there – yeah, go on, admit it – you really did think I’d lost my mind & mutated into some kind of wild-eyed snorting pawing charging bull!? One who’d sold off his entire portfolio, plus the family silver, and blown his entire wad on a titillating smorgasbord of the past year’s hottest large cap stocks & sectors instead?

But only for a moment, I hope, mes frères?!

OK, I may be a charging (?) bull – yup, my negligible cash holdings don’t lie… And I may well believe the market ultimately loses touch with the real world (& enters the floating world). But c’mon, did you really conclude I’d lost touch with reality?

Er, no… Or should I say, hopefully not..?

Obviously, having some kind of (global) macro investment thesis is essential for all investors. Well, it should be obvious – someone who foolishly pontificates it’s all (& only) about the micro (i.e. stock picking) could be, for example, missing out on a potentially lethal big picture. But an investor who focuses exclusively on the macro is being just as foolish. Because, of course, the micro’s where you’re likely to find the best long term multi-bagger opportunities. Don’t even fight it, macro & micro are both equally important…

[OK, I’ve gotta confess, that’s pretty much a bald-faced lie – any number of studies prove asset allocation (i.e. macro) is the dominant contributor to portfolio returns. But I’ll save you from reading ’em – instead, just ask yourself whether stock picking saved your ass in the last bear market?! Er… But hey, what can you do, at least stock picking keeps me off the mean streets! 😉 ]

And the stronger your investment thesis, the greater the discipline, the conviction, and the ultimate success of your investment portfolio & returns. But an investment thesis, whether it’s macro or micro, is not a winning lottery ticket you simply collect on, it’s not a belief or principle you defend to the death, and it’s certainly not some map that’s etched in stone. It’s about making your own luck, where preparation meets opportunity…so never grow too attached to a pet thesis. Instead, consider it an evolving premise that needs to be constantly challenged & updated. Far better to aggressively ask yourself (& the world) each day why your premise might actually be wrong – rather than devoting all your efforts to constructing some tottering edifice of proof to memorialise what might be, in the end, a long-dead thesis.

I’ve been developing this market bubble thesis for a couple of years now. To date, it stands up well to scrutiny & keeps getting stronger…but I’m also very aware it’s a thesis which will continue to evolve & be tested. And I certainly don’t think we’re anywhere close to bubble territory yet – leaving aside some obvious exceptions, investors aren’t exhibiting any of the usual symptoms: Yes, I’m sure you know ’em…a twisted market/valuation logic, a blatant disregard for risk/leverage, and/or a messianic over-confidence in future growth & returns.

Stock Picking…Art, or Science (Part IV)?!

Tags

art vs. science, asset allocation, diversification, Event Driven, GARP investing, growth vs. value, IRR, Margin of Safety, Return on Market Equity, stock picking, stock selection, stock valuation

Continued from here.

Value vs. Growth:

In my last Stock Picking post, I highlighted a common value investor failing – namely, a preference for over-leveraged & illiquid small/micro-cap stocks. All too often, it seems like this kind of preference (& others like it) are simply hard-wired in…maybe you’re born to be a value or growth investor! Now, we could get all touchy-feely here & try to personality-map this out – cautious vs. aggressive, quantitative vs. qualitative, thinker vs. dreamer, and so on – but does it really matter? Far better to recognise & accept what you are – if you haven’t already, just stop reading right now & come out to your wife:

‘Um, darling, it’s time you know…I’m a value investor!’

You may even find out she knew already…

Acceptance is the first & most important step in recognising inherent investing biases, and maybe trying to curb some of the worst excesses of hard-core value investing. [Of course, the same is equally true of growth investing]. This might take years…it definitely took me years! And pride often gets in the way – sometimes it’s nice to feel different, one of a select breed of smart investors who can boast of finding hidden gems in the rubble. But this is just an illusion – true growth investors are equally select. [Yes, most people seem biased towards growth stocks (if they ever mention stocks at all!?) – but in reality, they’re fairly clueless about money & investing. At best, they’re TALT* investors…] For them, genuine growth stocks are equally difficult & just as precious to find. And let’s face it – on average, in the real world, nobody can reliably claim value investing is superior to growth investing, or vice versa.

But accepting your value investing biases, curbing your excesses, and exploiting your natural advantages, is surely the best way to maximise your comfort & your returns as an investor. Except this can ultimately prove a double-edged sword…the world you end up living in may just be a value ghetto. Sure, it may feel large enough, it may even feel comfortable enough, but if that’s as far as your horizons stretch, you’re missing out on a whole other world of opportunity out there. Forget about investment ideology – again, this is about diversification, and it’s about becoming a better investor.

If you choose to ignore growth stocks & investing, you’re voluntarily cutting yourself off from vast swathes of the available investment universe – that’s countless companies, entire sectors, new/disruptive business models & secular trends, even geographies, etc. you’re missing out on, maybe forever…how does that make any sense? And even if you heed everything else I’ve written about diversification, how meaningful will the impact be if your portfolio remains blighted by the absence of growth stocks?

Of course, the classic value objection to growth stocks is that they’re invariably over-valued. But this, my friends, amounts to nothing more than a red herring… A true growth stock always seems to be over-valued, yet its share price can subsequently look astonishingly & ridiculously cheap after the business/stock somehow manages to scale up by hundreds or even thousands of percent. The real complaint here, I suspect, is that growth investing is just too hard!?! And if you’re a value investor, there should be no shame in admitting this – because that’s exactly how it feels: You naturally take a primarily quantitative approach to investing & you always require an adequate margin of safety, but identifying true growth stocks demands a far more qualitative approach & appears to offer little in the way of safety…

Stock Picking…Art, or Science (Part III)?!

Tags

art vs. science, asset allocation, correlation, debt, diversification, growth vs. value, home bias, illiquidity, stock picking, stock selection, stock valuation, volatility

Well, it’s not ideal publishing another post in this series two months+ after my last post…but I’m obviously no post a day pleaser. And life, Xmas, stocks & markets, and sneaking off to the movies, all tend to get in the way! 😉 A quick (re-)read of Parts I & II might be in order, if you’re so inclined? But to recap, very briefly: In Part I, I stressed stock picking is really two distinct & independent activities:

a) Stock Valuation, and

b) Stock Selection

And all too often, investors confuse & conflate the two…

But presuming your quantitative stock valuation process is nailed down, then stock selection is obviously a far more qualitative process…it’s certainly not about ranking & selecting stocks purely in terms of their upside potential. Fortunately, there’s plenty of stock selection filters you can employ – for example, to help protect against the risks posed by home bias, bottom-up stock picking, and/or a concentrated portfolio. Of course, the overall objective here is to:

i) Ensure stock selection is as much science, as it is art, and

ii) Always strive for greater diversification & superior risk/reward in your portfolio.

Here are some other filters you may find particularly useful. No doubt, as you read, they’ll strike you as perfectly obvious…the trouble is, applying them consistently is easily forgotten when you’re considering individual stock holdings & potential buys, let alone when you’re trying to manage the overall risk/reward of your entire portfolio:

Stock Picking…Art, or Science (Part II)?!

Tags

art vs. science, asset allocation, bottom-up stock picking, concentration risk, diversification, growth vs. value, home bias, Margin of Safety, stock picking, stock selection, stock valuation

Continued from here.

OK, time for a more in-depth look at stock selection. [NB: We’re presuming you’re already comfortable with the rigour & consistency of your stock valuation process]. While I’m happy to acknowledge stock selection may (ultimately) be art, here I’m going to illustrate & argue why it should be mostly grounded in science. So yes, I’m sorry – I don’t have any magic tricks up my sleeve to avoid, for example, a situation we all abhor…you know the one I mean:

You dutifully winnow a list of stocks down to two finalists, do a fine job of valuing them side-by-side, and make your final/fateful selection…only to see one stock double in three months, while you ponder the 35% loss on the stock you actually bought!?

But this can & does happen to the best of us! Unfortunately, it comes with the territory… You have to remember buyer’s regret & remorse are really just symptoms of Fear & Greed. Which can be tackled in two ways:

– Ignore the Problem:  As tempting as self-flagellation is, why indulge in such a pointless exercise? Don’t forget, we’ve already assumed you’re doing a bang-up job with your stock valuation process – so you obviously shouldn’t be buying dud stocks, or forsaking a decent margin of safety! What you’re dealing with here is really just Lady Luck…and her rough edges tend to get smoothed out over time.

– Systemise Your Process:  Stock selection is an independent, but equally important, part of your investment process – and as I’ve argued before, formalising & systemising every single component of that process is the best way to subdue and kill your fear & greed. Like I said, stock selection is mostly a science..!

And as I wrote in my last post:

‘Stock valuation must be absolute, but stock selection is usually relative.’

Catalysts – A Summary (Part I of II)

Tags

Alternative Asset Opportunities, asset allocation, catalyst, correlation, dividend tax treatment, Event Driven, Expected Value, fighting the Fed, Investegate, IRR, Liquidations, Margin of Safety, offer premium, portfolio allocation, QE, Recommended Cash Offer, Risk Arbitrage, risk-on risk-off, takeover offers, Takeover Panel, VIX, volatility, wind-down

My 10-part series on catalysts last year (stretching from Jan to Dec!) was well received, judging by the readership & links. I vaguely promised a summary to wrap up the series – as we’re well into the new year (already?!), it now seems appropriate to deliver that post (& hopefully it proves useful).

By the end of last summer, I concluded there’s little point fighting the Fed… A fortunate decision, as the market’s been decidedly risk-on since then! Though I must say, the power of central bank liquidity still surprises me. If you recall, last summer, we appeared to face a pretty bleak outlook both sides of the Atlantic: The fiscal cliff in the US & the sovereign debt crisis in Europe. [Hmmph, different stories…same destination!] Personally, I considered the cliff to be just like those periodic kerfuffles over the US debt ceiling – no genuine threat, but divisive political rhetoric could certainly roil the markets (& perhaps prompt a rating-agency response). On the other hand, the European crisis…er, what happened, where the hell did that go..?!

This risk-on attitude’s left my portfolio light on investments with shorter-term/lower-risk catalysts (i.e. event-driven investments). However, I still strive to pick new investments which (ideally) possess at least one longer-term/higher-risk catalyst. That type of catalyst doesn’t necessarily mean you avoid downside risk, but hopefully it stacks the deck in your favour vs. what the average value investment (complete with margin of safety) might offer. It may also accelerate the time-line for a stock’s realization of its intrinsic value/upside potential. Anyway, much of my event-driven exposure was ultimately re-invested in Alternative Asset Opportunities (TLI:LN) – so I simply exchanged a low return/relatively uncorrelated risk for a cheap/high return/totally uncorrelated risk! Go on, you might want to give it a try..! 🙂

Hitting The Century (X – Distressed)

Tags

asset allocation, Asta Funding, ATM fees, Colony Financial, corporate-media-retail complex, correlation, credit card debt, debt collectors, distressed assets, distressed consumers, distressed investing, Fortress Investment Group, hire purchase, pawn stores, payday loans, pre-paid debit cards, Rent-A-Center, rent-to-own, Sex and the City, student loans, stupidity, Tetragon Financial Group, unbanked, vice stocks

Continued from here.

Remember this series? Yep, I’m spending an unconscionable amount of time getting through it. FFS, I started last June, promising a closer look at my portfolio construction, allocation & metrics. [‘Hitting The Century‘ as it was my 100th post. And ‘Pretty Panties‘ because I was so bemused by the prior response to the phrase]. Instead, you get a bloody epic – like The Hobbit. Oh well, blog rules…how ’bout I try finish by next June?! 🙂

Honestly, I expected it to turn out like this. But I’m delighted at the great reader response – I guess I’ve been trying (ad nauseam) to pound the message home that portfolio construction/asset allocation is just as important as stock-picking. [Studies suggesting asset allocation accounts for 90% of returns have been debunked, but more recent studies certainly confirm an average/minimum 50% of returns are derived from this source]. Unfortunately, this is forgotten/ignored by a lot of investors, even great stock-pickers… Admittedly, they may (occasionally) practice some kind of ex-post allocation – better than nothing, but an ex-ante approach is vital if you really want to end up with a safer, more diversified & higher return portfolio.

OK, let’s trot on – here’s a familiar pie-chart as a quick reminder (sure, it’s a little out of date – but have you noticed my portfolio turnover?!):